UGBS 205

Fundamentals of Accounting Methods

Week 8– Bank Reconciliation Statement

College of Humanities
Business School
2017/2018
 Overview
• This session seeks to discuss the information value of
obtaining a reliable bank balance. Thus, students will go
through the process of reconciling the bank balance in the
cash book, which is unreliable, with the bank statement
balance.

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 Learning Objectives
• At the end of this session, you will be able to
– To explain the need for Bank reconciliation statement
– To explain the relevance of proper documentation for
reconciliation purposes
– To identify the causes of the differences between the
balances on cash book and bank statements
– To identify the main reasons why banks dishonour cheques
– Reconcile cash book balances with bank statement
balances

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 Reading List
• Read Recommended Text – :
- Chapter 11 of Marfo-Yiadom, Asante & Tackie (2015)
- Chapters 30 of Wood & Sangster(2008)

• Other Financial Accounting text books available to students

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 Introduction
• Businesses keep records of both cash and cheque
transaction in a cash book.

• Nature of cash book

– The debit side of the cash book is used for recording
receipts
– The credit side is used for recording payments

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 Introduction
• When amounts are paid into the business bank
account, the bank also credits the business account and
the cash book is debited.

• Similarly, when cheques are drawn, the bank debits the

business current account with the amount as soon as
they are presented and honored and the cash book is
credited.

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Godfred and Rita, UGBS
 Introduction
• What appears on the debit side of the cash book appears
on the credit side of the current account in the bank’s
books, and vice versa.
• It follows therefore that all things being equal the two
books should have the same balance. But rarely will the
cash book balance agree with the balance shown on the
bank statement.

• Because of this possible discrepancy, there is the need to

reconcile the two records (cash book and bank statement
balance).
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 Causes of differences/discrepancies
• The causes of the differences between the two
records are;
– Informational differences
• Differences arising from information available to bankers but
not the entity

– Timing Differences
• Differences arising from the different times of recording by
the entity’s cashier and the bankers

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 Causes of differences/discrepancies
• Timing differences
– Unpresented cheques
– Cheques issued out by the entity but yet to be presented to the
bankers or presented to the bankers but yet to clear

– Uncredited cheques
– Cheques received and deposited by the entity but yet to be credited
by the bank

– Bank errors;
– wrong credits; errors by the bank that increases an entities balance
– wrong debits; errors by the bank that decreases an entities balance

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 Causes of differences
• Informational differences
– Standing order
– Direct debit
– Credit transfers
– Bank charges
– Dishonoured cheques etc…

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 Reasons for dishonouring cheques
• Stale cheques
• Insufficient funds
• Insufficient mandate
• Amount in words different from amount in figures
• Post dated cheques
• No signature of account holder
• Signature differs from bank specimen

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 The need for a reconciliation statement

• A BRS is a statement that is prepared to bring into

agreement the difference between the cash book
balance and the bank statement balance.

• Who prepares this statement?

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 The Reconciliation Process

– Adjust the cash book with the informational

difference:
• Bring down the balance of the original cash book
into the adjusted cash book
• Enter on the credit side of the cash book all items
not previously entered but appeared on the debits
of the bank statement e.g. bank charges
• Enter on the debit side of the cash book items that
appeared on the credit side of the bank statement
but not previously entered in the cash book

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 The Reconciliation Process
• Prepare the BRS using the timing differences:
– Information entered in the cash book not yet recorded by
the bank on the bank statement namely; unpresented
cheques and uncredited cheques
– Common errors by the bank (wrong debit and wrong
credit)

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 Format of BRS
Bank Reconciliation Statement as at 30-09-2014

Gh¢ Gh
¢
Balance as per adjusted cash book ****
Add Unpresented cheques ****
wrong credit **** ****
****
Less Uncredited cheques ****
wrong debit **** (****)
Balance as per bank statement ****

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 End of Session Questions
• Is bank reconciliation necessary for businesses?
Explain
• What are the main causes of discrepancies between
the cash book balance and the bank statement
balance
• Identify any four reasons for the dishonor of cheques
by banks

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